Here is a transcript of Casey's comments at the CSFB conference. A good reading if you have the time.
Fez
___________________
Global Crossing Ltd.
Thomas J. Casey
CEO
The Global Crossing story is an exciting one. Global Crossing has the biggest network in the world, and it is almost complete. We have delivered on time and on budget, which is an especially remarkable feat given the size of the network. This has been especially valuable for us in building credibility with customers. The network is an important piece of our infrastructure, but customer sales really drive the business.
In order to guarantee success, Global Crossing must exceed customers' expectations, not just meet them. To be a successful customer-focused company, we needed to transform the organization from a construction business to a service provider. We have accomplished this. We have shifted our focus from building to customer services. We have shifted from acquiring new assets to integrating them. Today, Global Crossing operates as a single, globally integrated company.
History of Growth
Global Crossing has evolved from a regional player to a global company. Our first deal with Frontier gave us a network built ahead of schedule. We then built a web-hosting asset called Global Center through acquisitions. Next, we achieved a level of people, systems, and size that gave us credibility in the marketplace. The next deal with Racal in the U.K. gave us a significant presence in an important market. Today, Racal manages over 10,000 edge devices in the U.K. The deal with Hutch gave us a presence in the Far East, including access to 600 buildings in the Hong Kong market. The last major acquisition was IXnet, which brought relationships with 2,000 of the largest financial institutions in the world.
Customer and Service Segmentation
Global Crossing has successfully integrated these acquisitions, but there were clearly components that did not fit within our core business. We segmented our customer base into core customers like Merrill Lynch or Daimler Chrysler and non-core customers like a lumberyard in Minneapolis. We also segmented our services into core services like IP/VPN's and frame relay ATM's, and non-core services like calling cards, cellular services, X25, and e-mail. The focus of Global Crossing is to grow the business of selling core services to core customers. For those core customers to whom we have sold non-core services, we plan to migrate them to core services. For non-core customers buying core services, we are willing to maintain those relationships and harvest the revenues, but we are not pursuing aggressive growth in this area. Finally, non-core customers buying non-core services were a distraction, and we eliminated about $100 million of this kind of bad business. Segmentation of customers and services allowed us to better focus our resources.
From this process of segmentation, Global Crossing developed a vertical focus. We are targeting industry verticals that are global because we have a network that connects all of the major cities in the world. We are focused on verticals with data and broadband needs, not voice needs. Communities of interest allow us deliver services profitably by keeping them entirely on our network. Every one of the major financial services firms is building a private network between the same cities, and Global Crossing offers them tremendous advantages by providing a single shared infrastructure. This kind of community of interest provides numerous opportunities for us. We target customers who are growing rather than trying to take market share from others. The CLEC model does not work. We are focused on verticals like media that are undergoing revolutionary change. All media is going digital, and this requires a monumental increase in bandwidth usage. It takes 53 hours today to send one hour of high-definition film over OC-3. As more media is distributed digitally, bandwidth demands will skyrocket. We are targeting industries that are willing to spend money for these services.
Focus and Target Markets
Our business can be viewed as several layers. The foundation of the business is the optical, IP, broadband network that extends to all of the biggest cities, buildings and clients in the world. By targeting 250 cities, we can compete for 80% of the global marketplace. On top of the network is the products and services layer. We have reduced the number of our services from thirty-eight to eight because 80% of the market opportunity lies in these eight products. Our target market includes only the 7,500 companies that fit within the seven vertical markets that represent 80% of the opportunity. This is a very focused plan.
We have a very strong position in the Traditional Carrier vertical market because of the scale of our network and because we offer them global portability. We can also move very quickly on new deals and services because we have contracts in place with many of the largest competitors in this space. These are tremendous competitive advantages.
In our vertical segmentation, we distinguished between traditional carriers and Broadband Service Providers including IPS's, ASP's, Tier Two Hosters, and Value Added Carriers. These companies have been building networks for the last five years, but they are finding it more cost-effective to buy networks than to build them. We are targeting the approximately 1,000 new entrants in this market who are interested in outsourcing their network construction.
We have a first mover advantage in the Financial vertical. Two thousand of our clients are connected to a common extranet through a single optical, IP network connection. This single connection provides our customers with access to a broad range of information resources that would traditionally require thousands of different connections. These resources include news, research, market data, clearing, settlement and analytics. While our competitors are focused on selling a large number of different connections, we have been selling customers access through a single connection.
We are positioned very well to build similar extranets in the Media and Entertainment vertical. Content is created digitally and will soon be distributed digitally. Special effects are digital. Both content creation and distribution will require increasing access to broadband. We are currently rolling out our Media extranet and will connect sixteen media centers by the end of 2001.
We also focus on the Multinational vertical, the Government vertical, and we have set up a bandwidth trading desk. The Multinationals include those big companies that do not fit within the other verticals. For Government, we have set up a deal with the British embassy that we hope to leverage further. Our bandwidth trading business is focused on cannibalizing the old technology. The private line business today is about a $30 billion market growing to $50 billion or more by 2003. Until we built the Global Crossing network, a company never had access to a seamless network between Hong Kong and Buenos Aires, for example. The $30 billion in contracts that most companies have using the old technology expire in the next 36 months, and we are already negotiating forward-looking contracts with those companies to transition them to the new, seamless Global Crossing infrastructure.
The Right Sales Force
The key to success in these vertical markets is hiring and retaining good and knowledgeable sales people. We had to radically change the way that the sales force operated. We are not in the business of competing for contracts based on price. If a customer needs a simple solution to a simple problem, then they should hire one of our competitors. If on the other hand a customer has a complex problem that requires a sophisticated, custom-designed solution, then Global Crossing is uniquely positioned to provide them with a competitive advantage. This is why our large customers come to us. We need to grow our sales force with 230 of the right kind of people, and we needed to cycle out several hundred sales people who were not going to close the right kinds of business for us. We are looking for people with the expertise to understand our customers' business.
Customer Benefits
Seven thousand financial institutions are connected to our network in 190 countries. We have the most secure network in the world. Our customers choose Global Crossing because of the strategic advantages that we provide them. First, we understand their business better than any of our competitors do because our sales people come from their industry. Second, we offer the biggest and broadest network in the world. Third, a large number of the companies that our customers want to work with are already signed onto our network. The moment a company connects to our network, they can immediately publish their software or services securely to all of the financial institutions already on our network.
The SWIFT Relationship
A company like SWIFT can immediately shift from working through hundreds of suppliers to working through one supplier with a single contract. A second dynamic with this relationship is that SWIFT content becomes exclusively available on the Global Crossing IP network. Any business that wants to clear a foreign exchange trade must access SWIFTNet services by signing up as a Global Crossing customer. As SWIFT grows, so does Global Crossing's extranet. Users drive content growth on our network, and content drives user growth.
SWIFT has also become a distributor for Global Crossing's services through their own global sales force. SWIFT has become another channel for us. Through this channel, Global Crossing may become the de facto standard for straight-through processing as the industry drives trade processing from three days to one day. The traffic on our network will be enormous. Because of the deal with SWIFT, we are better positioned than anyone to become the industry standard.
Better, Faster, Cheaper
The clear benefits of our network are that it is Better, Faster and Cheaper. Our network is Better because of its greater coverage and higher bandwidth. It is better for customers because it is an integrated network from a single supplier. It is rapidly scalable because there is tremendous capacity built into it. This allows us to deliver better service in terms of like latency and error rates. The network is Faster because there is less congestion and fewer hops. Our customers get direct access to content because it all resides on a single network. They avoid transitions through other networks and other equipment suppliers that could cause errors, delays and maintenance problems. Our network is Cheaper because we built and operate our entire network and frequently maintain it with our own ships. We are able to leverage Dig Economics and On-net Economics.
Connect to Customers
While building a powerful global network is important, it is even more important to connect that network directly to customers. We have focused our network on the 7,500 biggest customers, and these companies are normally found only in the biggest markets. By connecting the largest cities, then, we generate tremendous leverage. Last year we completed ten major city networks in the U.S., five in Europe and three in Asia. The new focus for Global Crossing is connecting the end user to the network intelligently. We only make connections if the economics make sense.
End-to-end service is key to building full tolerance into the network and to building the restoration that is so essential. The other distinct advantage for us is that our OSS system can see the entire network. Because most of the industry has built their networks by cobbling together components from many different manufacturers with many different OSS systems, they have had tremendous problems with timely provisioning, billing and other operations. In the financial community, systems are built quite differently. A system architect will build the OSS, and all of the subsequent systems have to tie into the OSS. This ensures that the systems will function properly. Because the telecom industry does not have to settle and create P&L's in real time, they have built much more inefficient networks. Global Crossing is building a real-time, event-driven Operational Support System. Our assets will become software-driven assets, and revenue will come from selling services, not from boasting about fiber route miles. The only way to accomplish this kind of seamless OSS is to own and control all of the assets in the network.
First Mover
In this business second place is last place. In the Atlantic undersea market, we had reaped tremendous profits by the time the competition entered the scene. We generated $1.5 billion in revenue from selling only 12% of the capacity. Now that so much capacity is being built in the Atlantic, Global Crossing expects only 2% of its 2001 revenue to come from this market. We have moved on to the next system-South America and Asia. When the technology has changed and we can create a different kind of competitive advantage, then we will focus on the Atlantic market again. We make money on every deal. We are not forced to do bad deals because we are first to every market.
On-Net Economics
On-net economics are key to our business. The most value-added service will be unprofitable if you have to run it through someone else's network. We want to keep all of our traffic on our network. We have an IP, broadband, optical network running at OC-192, and even the most basic service is extraordinarily profitable if it is delivered on-net to on-net. We keep traffic on-net with a very focused go-to-market strategy. We cannot afford to sell to consumers and small businesses so we must target the high-value customers.
Incumbents and New Entrants
How do we compare to the other players in the marketplace? Incumbents tend to be regionally focused and running legacy networks. They have a monopoly mentality and do not attract the most innovative and entrepreneurial people. Their networks were not built for an MPLS-based IP network model in which infrastructure is shared to generate enormous economies of scale. This market is shifting to a very different model than we have today. Eventually, this market will include only customers who want capacity and providers of hosting and professional services. These players will conduct their business over an optical, broadband, IP network using MPLS. There is not much room in this market for the incumbents.
The new entrants in this marketplace are two years behind us, and their networks are incomplete. These players are under-financed and depend on the volatile capital markets for funding. They cannot match Global Crossing's economies of scale and are very dependent on a very few parts of their networks for their revenue.
Strategic Position
Global Crossing is in a very good position in this marketplace. We have a very diversified revenue stream, and this protects us from the risk of any single product, customer or market not meeting expectations. We have grown our network rapidly while integrating each of our strategic business acquisitions. This integration was possible because we chose the right acquisition targets and we were diligent about the integration plan. This diversification and integration has left us in a very strong position.
Our financial picture looks strong as well. We continue to grow our adjusted EBITDA from quarter to quarter. We continue to make and exceed projections for our company. I have been very impressed with the "By Any Means Necessary" attitude within the culture of Global Crossing. We are determined to execute and succeed, and we do not tolerate excuses for underperformance. You will continue to hear good news from Global Crossing.
Focus on Customers
Our competitive advantages include the reach, bandwidth and quality of our network, the services that we have deployed, and our focus on a limited number of verticals. We will no longer talk to you about the strength of our assets, but of the customers that we have acquired. We are going to win these customers by understanding their business, not by showing off our network. Our entire business is now focused on selling to customers. Our network assets will provide us with competitive advantages needed to play in this market, but our success will be measured by our ability to out-sell the competition. |
